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New York files suit against President Trump, alleging his charity engaged in 'illegal conduct'

FILE — Donald Trump at a campaign event where he raised roughly $2.8 million for his foundation, in Des Moines, Iowa, Jan. 28, 2016. The New York State attorney general’s office filed a lawsuit on June 14, 2018, taking aim at the Donald J. Trump Foundation, accusing the charity and the Trump family of sweeping violations of campaign finance laws, self-dealing and illegal coordination with the presidential campaign. (Damon Winter/The New York Times/Copyright 2018)

The New York attorney general filed suit against President Donald Trump and his three eldest children Thursday, alleging "persistently illegal conduct" at the president's personal charity, saying Trump repeatedly misused the nonprofit organization - to pay off his businesses' creditors, to decorate one of his golf clubs and to stage a multimillion-dollar giveaway at his 2016 campaign events.

In the suit, filed Thursday morning, Attorney General Barbara Underwood asked a state judge to dissolve the Donald J. Trump Foundation. She asked that its remaining $1 million in assets be distributed to other charities and that Trump be forced to pay at least $2.8 million in restitution and penalties.

Underwood said that oversight of spending at Trump's foundation was so loose that its board of directors hadn't met in 19 years, and its official treasurer wasn't even aware that he was on the board.

Instead, she said, the foundation came to serve the spending needs of Trump - and then, in 2016, the needs of his presidential campaign. She cited emails from Trump campaign staff members, directing which charities should receive gifts from the Trump Foundation, and in what amounts.

Underwood also asked that Trump be banned from leading any other New York nonprofit organization for 10 years - seeking to apply a penalty usually reserved for the operators of small-time charity frauds to the president of the United States.

In the suit, Underwood noted that Trump had paid more than $330,000 in reimbursements and penalty taxes since 2016. New York state began looking into the Trump Foundation in response to an investigation by The Washington Post.

But she asked the judge to go further, and require Trump to pay millions more. She said a 20-month state investigation found that Trump had repeatedly violated laws that set the ground rules for tax-exempt foundations - most important, that their money is meant to serve the public good, not to provide private benefits to their founders.

"This resulted in multiple violations of state and federal law," she wrote in the legal complaint.

Underwood was promoted to attorney general only weeks ago, succeeding Eric Schneiderman, D, after he resigned following allegations that he had physically abused several romantic partners.

In tweets Thursday morning, Trump suggested that the lawsuit was politically motivated.

"The sleazy New York Democrats, and their now disgraced (and run out of town) A.G. Eric Schneiderman, are doing everything they can to sue me on a foundation that took in $18,800,000 and gave out to charity more money than it took in, $19,200,000. I won't settle this case!" he wrote, adding: "Schneiderman, who ran the Clinton campaign in New York, never had the guts to bring this ridiculous case, which lingered in their office for almost 2 years. Now he resigned his office in disgrace, and his disciples brought it when we would not settle."

The Trump Foundation has no employees. On Thursday, Amanda Miller, a spokeswoman for Trump's company, responded on its behalf. She echoed Trump's assertion that this was a politically driven lawsuit, saying: "This is politics at its very worst."

Underwood is a career staff member, not an elected official. She has said she will not seek election for a full term as attorney general in the fall. She declined to comment on the case beyond issuing a written statement.

"As our investigation reveals, the Trump Foundation was little more than a checkbook for payments from Mr. Trump or his businesses to nonprofits, regardless of their purpose or legality," she said in the statement.

Underwood said she had sent letters to the Internal Revenue Service and the Federal Election Commission, identifying what she called "possible violations" of tax law and federal campaign law by Trump's foundation.

Underwood has jurisdiction over the Trump Foundation because the charity is based at Trump Tower in Manhattan and is registered in New York state.

Trump has been president of the foundation since he founded it in 1987. In late 2016, he had promised to shut it down - but could not while the attorney general's investigation continued.

Three of Trump's adult children - Donald Trump Jr., Ivanka Trump and Eric Trump - also were named in the lawsuit because they have been official board members of the foundation for years. Under the law, Underwood said, board members are supposed to scrutinize a charity's spending for signs that its leader - in this case, their father - was misusing money.

But in reality, Underwood wrote, the three Trump children exercised no such oversight. The board had not met since 1999.

"The Foundation's directors failed to meet basic fiduciary duties and abdicated all responsibility for ensuring that the Foundation's assets were used in compliance with the law," she wrote.

Underwood asked the judge to ban each of the three from serving as a director of a New York nonprofit organization for a year. It was not clear whether any of the three are serving on the board of any such charities. Eric Trump, for instance, stepped down from the board of the Eric Trump Foundation after the 2016 election, and the charity was renamed Curetivity.

Although Donald Trump's name is on the foundation, in recent years most of its money was not actually his. Trump did not donate any money to the foundation between 2008 and 2015 - instead, its largest benefactors in recent years have been wrestling moguls Vince and Linda McMahon, who gave $5 million total in 2007 and 2009. Linda McMahon was later appointed by Trump as head of the Small Business Administration. The McMahons have declined to answer questions about the reasons for their gifts.

The lawsuit shows that the Trump Foundation - which Trump founded to give away some of the royalties from his 1987 book, "The Art of the Deal" - looked, on paper, like other tax-exempt nonprofit organizations. It filed annual reports with New York state and the IRS. It listed directors and donations.

But behind the scenes, Underwood said, the foundation was essentially one of Trump's personal checkbooks - a pool of money that his accounting clerks knew to use whenever Trump wanted to pay a nonprofit organization. By law, Trump wasn't allowed to buy things for himself using the charity's money, even if he was buying them from nonprofit groups.

At one point, during a deposition, a New York state investigator asked Allen Weisselberg - a Trump Organization employee who was also listed as treasurer of the Trump Foundation - whether the foundation had a policy for determining which specific payments it was allowed to make.

"There's no policy, just so you understand," Weisselberg said. The interviewer asked whether Weisselberg had understood that he was actually on the board of the Trump Foundation, and had been for more than a decade.

"I did not," he replied.

With no outside oversight of Trump's use of foundation money, Underwood said, the future president had repeatedly used his charity's money to help his businesses, and himself.

Twice, for instance, Trump used the charity's money to settle legal disputes that involved his for-profit businesses.

In 2007, he settled a dispute with the city of Palm Beach, Florida, over code violations at his Mar-a-Lago resort. The city agreed to waive outstanding fines if Mar-a-Lago gave $100,000 to a charity.

But the donation, to an organization called Fisher House, came instead from the foundation, Underwood said - after Trump wrote a note to Weisselberg. "Allen W, DJT Foundation, $100,000 to Fisher House (Settlement of flag issue in Palm Beach)," said the note, which is included in the lawsuit.

In addition, in 2012, a Trump golf club agreed to pay $158,000 to settle a lawsuit with a man who was denied a $1 million hole-in-one prize during a tournament at the club. The Trump Foundation paid the money instead of the club, Underwood said.

Both of those payments were first reported by The Washington Post. In March, after the attorney general's investigation was underway, Trump repaid his foundation all $258,000, plus more than $12,000 in interest, Underwood said.

Underwood also listed several smaller instances of what she called "self-dealing," meaning Trump using foundation money to help his businesses. The charity paid $5,000 to place an ad for Trump hotels in a program for a charity gala. It paid $32,000 to satisfy an obligation of a Trump company that manages a New York estate. It paid $10,000 to buy a portrait of Trump, which was later found hanging in the sports bar at Trump's Doral golf resort.

Underwood said Trump already had repaid amounts spent by the foundation, plus penalty taxes totaling more than $4,000.

In the case of the portrait, she said Trump's golf club has now paid the foundation the "fair rental value" of using the foundation-owned painting as decoration: $182.

IRS rules also prohibit tax-exempt foundations from aiding political campaigns. But Underwood listed two instances in which Trump's foundation had seemed to do so.

In August 2013, Trump donated $25,000 from his foundation to a Florida political group aiding the reelection effort of state Attorney General Pam Bondi, R. Around the same time, Bondi's office was considering whether to join an ongoing lawsuit by Schneiderman, then the New York attorney general, alleging that Trump had defrauded students at his now-defunct Trump University.

Afterward, the Trump Foundation omitted any mention of Bondi's political group - called And Justice for All - from its annual report to the IRS, and instead said the $25,000 donation had gone to a nonprofit organization in Kansas with a similar-sounding name.

Underwood said Trump's staff blamed confusion among accounting clerks for the foundation's money being spent, instead of Trump's own. As for the incorrect IRS filing, Underwood wrote, "The Foundation has no credible explanation for the false reporting of grant recipients."

After The Washington Post reported on the donation to Bondi's group in 2016, Trump repaid the $25,000 and paid a penalty tax of $2,500 for an improper political gift.

But Underwood alleged that the campaign Trump's foundation helped the most was his own.

In January 2016, Trump skipped a debate among Republican candidates because he was feuding with Fox News Channel, the debate's host. Instead, Trump held a televised fundraiser for veterans - drawing millions from wealthy friends and small-dollar donors, and giving much of it to the Trump Foundation.

In his deposition, Weisselberg said he was surprised to be told that he needed to go to Iowa on short notice, to have the foundation's checkbook ready in case Trump wanted to make donations on the night of the fundraiser.

"I wanted to know why I was going to Iowa. I had never gone anywhere with Donald on any kind of - anything," he said. But he told another executive to get ready. "He grabbed the checkbook. And later, we flew to Des Moines."

Underwood said that, afterward, "the Foundation ceded control over the charitable funds it raised to senior Trump Campaign staff." She cited emails in which Corey Lewandowski, Trump's campaign manager at the time, directed which veterans' charities should receive money.

At one point, Lewandowski emailed Weisselberg to ask whether the Trump Foundation's money could be ready to distribute during Trump's last campaign events before the Iowa caucuses: "Is there any way we can make some disbursements [from the proceeds of the fundraiser] this week while in Iowa? Specifically on Saturday," Lewandowski wrote, in an email cited by Underwood.

At one point, the lawsuit says, Trump gave an oversize $100,000 Trump Foundation check to a charity at a campaign event in Council Bluffs, Iowa.

The problem: Nobody appears to have told the Trump Foundation.

"This 'check' was given out (see video). This is not one of the charities we've cut a check to yet. Are there other charities like this?" Jeff McConney, a Trump Organization staff member, wrote in an email to Lewandowski that was cited in the lawsuit.

The check was later cut.

In 2016, Trump sought to excuse his foundation's actions in a letter to the New York attorney general, saying that the Iowa fundraiser was a charity event. "This statement was false," Underwood wrote, "because, in reality, the Fundraiser was a Trump Campaign event in which the Foundation participated."

She wrote that Trump had repeatedly signed charity documents saying that nonprofit organizations like his were not allowed to become involved in political campaigns. "Mr. Trump's wrongful use of the Foundation to benefit his Campaign was willful and knowing," she wrote.

As president, Trump has repeatedly called for the repeal of the Johnson Amendment, a 1954 tax code provision that imposed the ban on political activity by nonprofit groups.

Author information: David A. Fahrenthold is a reporter covering the Trump family and their business interests. He has been at The Washington Post since 2000, and previously covered Congress, the federal bureaucracy, the environment and the D.C. police.